What is Transfer Tax?

A transfer tax is imposed on tax on the sale, donation, barter, or any other mode of transferring ownership or title of real property at the maximum rate of 50% of 1% (75% of 1% in the case of cities and municipalities within Metro Manila) of the total consideration involved in the acquisition of the property or of the fair market value in case the monetary consideration involved in the transfer is not substantial, whichever is higher. This is pursuant to Section 135 of the Local Government Code of 1991 (LGC).

You need to pay the transfer tax because the evidence of its payment is required by the Register of Deeds of the province concerned before registering any deed. This is also required by the provincial assessor before cancelling an old tax declaration and issuing a new one in its place. Please do not confuse the transfer tax which is paid to the local government with the transfer taxes due to the BIR (which may either be donor’s or estate taxes).

Disclaimer: While great effort has been taken to ensure the accuracy of the discussion here as of its writing, this is not intended to replace seeking professional services. Always consult with your tax attorneys and read up on the relevant laws and regulations also.

Who should pay

The payment of the transfer tax is the responsibility of the seller, donor, transferor, executor or and administrator.

When to pay

The deadline for payment is sixty (60) days from the date of the execution of the deed or from the date of the decedent’s death. Please note too that notaries public are required to furnish the provincial treasurers with a copy of any deed transferring ownership or title to any real property within thirty (30) days from the date of notarization.

Surcharges and penalties for late payments (as per section 168 of RA 7160)

Surcharge – No more than twenty-five percent (25%) of the amount of taxes, fees or charges not paid on time

Penalty – No more than two percent (2%) per month of the unpaid taxes, fees or charges including surcharges, until such amount is fully paid, but in not to exceed thirty-six (36) months or seventy-two percent (72%).

Where to pay

The transfer tax is to be paid at the Treasurer’s Office of the city or municipality where the property is located.

Requirements

In general, the requirements for the payment of transfer tax are the following:

Certificate Authorizing Registration from the Bureau of Internal Revenue;

Realty tax clearance from the Treasurer’s Office; and

Official receipt of the Bureau of Internal Revenue (for documentary stamp tax).

Transfer Tax Rates

With regard to the transfer tax rates, please click on the links to see the different transfer tax rates and documents required to transfer the registration of a property. You have to check the rates on a per city or per municipality basis as the LGC only provides for the maximum rates. Click on the links below for the transfer tax rates of major cities.

The http://www.doingbusiness.org site is so cool. You can learn about the requirements for registering property, etc., with cost and estimated time to complete.

Transfer Tax Base

In the case Romulo D. San Juan vs. Ricardo L. Castro, in his capacity as City Treasurer of Marikina City [G.R. No. 174617 dated December 27, 2007], one of the issues was the proper computation of the transfer tax base. In this case, petitioner San Juan conveyed real properties to a corporation in exchange for its shares of stock[1]. Using as basis Section 135 of the LGC, San Juan wanted to pay the transfer tax based on the consideration stated in the Deed of Assignment. Respondent Castro, as the Treasurer, informed him that the tax due is based on the fair market value of the property. Petitioner Castro protested the Treasurer’s computation in writing, which the Treasurer also denied in writing. Petitioner Castro then filed a Petition for mandamus and damages against the Treasurer praying that he be compelled to accept payment of the transfer tax based on the actual consideration of the transfer/assignment.

The bone of contention was the proper interpretation of Section 135 of the LGC which provides:

“SECTION 135. Tax on Transfer of Real Property Ownership. (a) The province may impose a tax on the sale, donation, barter, or on any other mode of transferring ownership or title of real property at the rate of not more than fifty percent (50%) of the one percent (1%) of the total consideration involved in the acquisition of the property or of the fair market value in case the monetary consideration involved in the transfer is not substantial, whichever is higher. The sale, transfer or other disposition of real property pursuant to R.A. No. 6657[2] shall be exempt from this tax. xxx”

Petitioner San Juan took the position that the transfer tax base should be the total consideration involved, because the intention of the law is not to automatically apply the “whichever is higher” rule. He argued that it is only when there is a monetary consideration involved and the monetary consideration is not substantial that the tax rate is based on the higher fair market value. His argument was that since he received shares of stock in exchange for the real properties, there was no monetary consideration involved in the transfer.

Respondent Castro, on the other hand, took the position that the transfer tax base should be the fair market value, because it is higher than the “monetary consideration” San Juan received in exchange for his real properties. Castro argued that “monetary consideration” as used in the LGC does not only pertain to the price or money involved but also, as in the case of donations or barters, to the value or monetary equivalent of what is received by the transferor, which, in this case, Castro argued to be the par value of the shares of stock San Juan transferred in exchange for shares of stock.

As anticlimactic as this may sound, the Court did not rule squarely on the correct computation of the transfer tax base because it held that a Petition for Mandamus was not the correct remedy. Mandamus lies only to compel an officer to perform a ministerial duty (one which is so clear and specific as to leave no room for the exercise of discretion in its performance) but not a discretionary function (one which by its nature requires the exercise of judgment).

Sample Computation

Considering that there is still an issue as to the proper computation of the transfer tax base, I suggest that we not delve into the various interpretations of Section 135 of the LGC and simply multiply the transfer tax rate by the higher amount between the consideration paid and the fair market value.

Let’s take for example a residential condominium in Antipolo with a floor area of 50sqm and a Selling Price (SP) of Php2.0M. The existing market value as per Tax Declaration is currently at Php 1M.

Since SP is higher than the Market Value, we shall use SP to compute the transfer tax:

Antipolo City Transfer Tax Rate: 0.75% [that is, 75% of 1%]

Transfer Tax = 0.75% x 2,000,000 = Php15,000

What if you don’t agree with the Treasurer’s computation?

Assuming you disagree with the tax assessment made by a local treasurer, you may file a written protest thereof pursuant to Section 195 of the LGC, which provides:

“SECTION 195. Protest of Assessment. — When the local treasurer or his duly authorized representative finds that the correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting the assessment; otherwise, the assessment shall become final and executory. The local treasurer shall decide the protest within sixty (60) days from the time of its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he shall issue a notice cancelling wholly or partially the assessment. However, if the local treasurer finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with notice to the taxpayer. The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse of the sixty-day (60) period prescribed herein within which to appeal with the court of competent jurisdiction, otherwise the assessment becomes conclusive and unappealable.”

In the case earlier discussed, the Petitioner protested in writing against the assessment and Respondent denied it in writing as well. Petitioner should thus have either: 1) appealed the assessment before the court of competent jurisdiction, or 2) paid the tax and then sought a refund.

In my view, the Petitioner San Juan could have made another argument, that is, assuming that the “monetary consideration” would be equivalent to the par value of the stocks (which is still lower than the fair market value), that value is substantial and thus, there is no need for the “whichever is higher” provision to kick in. Anyway, hopefully this issue would be decided upon squarely soon as there are really a lot of tax-free exchanges occurring and we really need guidance on the computation of transfer tax. Perhaps one day a taxpayer and his tax attorneys may decide to bring this issue up until the Supreme Court for a final decision.

Taking everything into consideration, personally, unless the difference in tax that you need to pay is really significant, it would be better to follow the computation of the Treasurer. Filing a case in court would require filing fees and fees for tax attorneys, not to mention taking up much of your time. If you will not pay the transfer taxes, you cannot transfer the title to your name and this would lead to problems with your buyer and the closing of your sale transaction. Weigh your options first before heading to battle. In real estate, as in everything, closing the deal fast is key.

[1] We will discuss the mechanics of a tax-free exchange in a later post

About Jay Castillo

Jay is the owner, founder, and editor-in-chief of The Foreclosure Philippines blog. After several successful real estate deals, he quit his job as I.T. Manager to focus on Real Estate Investing. He is a PRC licensed Real Estate Broker (REB License # 3194)... [Read more]

My father died on October 27, 1992. Estate tax was paid to BIR within 3 months. Sad to say my brother was not able to transfer the Property to our names ( sons and daugter). But from that time, Real property tax was diligently paid annually to the Quezon City Hall.
Recently, I was instructed by my brothers and sister to start the process of transferring the property to our name. I was able to secure C.A.R.(Certificate authorizing registration) from the BIR. I was able to secure tax clearance of the property. Then I had the property assessed for payment of Transfer Tax at the city treasurer’s office.
It was assessed for 0.75% of the zonal value of the property.
Then it an addtional amount for surcharge for late payment at 115% of the Transfer Tax based on current zonal value. The assessor said that 115% is the maximum penalty they can impose.
The computation was
transfer tax P11,000
+ Surcharge P13,000 (115% of transfer tax at current assessed value of
______ property)

P24,000

Is this reasonable? I believe the surcharge is not reasonable, The surcharge should be based on the property’s assessed value during the time of death of my father. (1992). 115% is also too high. It should only be 72%

Hope you can help us.

April Lyn Grantuza

Hi, just wanna ask. What are the penalties? Or how much will be the penalties for not paying on the said date on the Deed of Sale? Like its almost 10 years ago? Does the computation still 60% of 1%? Thanks.

Hi April, the surcharge is 25% of the amount of taxes, fees or charges not paid on time and the penalties are 2% per month of the unpaid taxes, fees or charges including surcharges, until such amount is fully paid, but in not to exceed thirty-six (36) months or seventy-two percent (72%).

For example, if the transfer tax is Php15,000 (using the example above), the late payment surcharge would be 25% of Php15,000 or Php3,750. The interest penalty for 10 years late payment would be the maximum 72% of (Php15,000 + Php3,750) or Php13,500. The total tax due would then be equal to Php15,000 + Php3,750 + Php13,500 or Php32,250.00.

Edna

Hi Jay,

We are selling our condo in Taft, Manila, but our buyer wants us to facilitate the transfer of title. Can you help us or recommend somebody?

Hi Edna, you can try OMI Land Title Services, I outsource my title transfer needs to them. You can checkout their contact details through this page on their website: http://omilandtitle.smilds.com/content.php?id=17. They give free quotations anyway, just let me know if you need further assistance! I just remembered I need to follow-up with them on one property they are transferring for me right now, Thanks for reminding me!

cath

hi sir jay, thank you 4 this explanation. it really help me to understand may report on tax. 🙂 but a little more explanation on 60% of 1%. what does this mean?
i hope you could fine time to answer my question. thank you very much. more power to you and ma’am cherry.

Speaking of tax, which do you think has more advantage? To declare the ownership of the property as corporation or as individual? We’re planning kasi to buy a 6 door apartment with my brother-in-law and his wife, can you tackle the advantage if the title was named after a corporation. Thanks Jay.

Ashes

Hi jay,

Curious to know if you’ve ever contested a computation for taxes before? I can’t find anything on this, especially on contesting the zonal value plied to a property. Do you happen to know if there is any procedure for contesting a computation after. Doas has been signed? In other words, is there a venue for arguing your case, and if so, should the taxes be paid first to avoid penalties and then a refund sought?

Thanks!

Looove your blog by the way. Learned lots a things about real-estate purchases.

Kaya lang may ruling ang BIR na “CAR, upon issuance, shall have to be presented to the Register of Deeds within a max of not more than 2yrs, otherwise, the CAR shall be deemed permanently expired and therefore no effect”

meron namang option for replacement…medyo mahaba lang.

sleepless in manila

Hi jay, We got certificate Authorizing registration for the estate of our mother which says here valid until June 2011. Are we subject to transfer tax in the register of deeds when we want the properties in the name of the heirs?

Thanks
Sleepless in Manila

arnel

Hello Mr. Jay,i wrote to ask when did the tax on the transfer of real property began,i mean when did it start,is it July 1971 or July 1974?

Ralph Escalante

Hi Jay,

We acquired a foreclosed property thru public bidding. We are now on the process of having the ownership transfered to us. Aside from the tranfer tax, do we still have to pay the delinquent yearly tax (about 16 years)including penalty, which the previous owner didn’t pay? Thanks.

Ralph E.

dyords

Hi Jay,

I am still a little bit confuse but here you go… Where do I pay the TT? At the provincial treasury or municipal treasury? I already paid the CGT and DST at BIR office (provincial) and just waiting for the CAR. Also where do I pay the registration fee? Thank you so much. ;-))

taxconsultantdavao

municipal treasury

sleepless in d.c.

DEAR JAY,

MY FAMILY HAS TASKED ME TO BE THE AUTHORIZED SELLER OF A COMMERCIAL LOT IN DAVAO.HOW WILL I COMPUTE THE CGT, DST,AND OTHER TAXES IF IM SELLING IT BY 20M NET.IM PLANNING OF OVERPRICING IT SO THAT I WILL SHOULDER THE TAX AND TRANSFERS ETC…( ZONAL VALUE OF 6500/SQM. THE HOUSE AND LOT HAS A COMBINED LOT AREA OF 830SQM.)BECAUSE MY BUYER DONT LIKE TO DO PAPERWORKS AND IM THINKING OF HIRING A BROKER BUT BEFORE DOING THAT CAN YOU GIVE ME AN OVERVIEW OR A SAMPLE COMPUTATION SO THAT I HAVE AN IDEA,, SOME BROKER TEND TO GIVE ME A DIFFERENT PRICE.. THANK YOU

taxconsultantdavao

sleepless in dc,

you did not mention about the market value of the improvements (house). that value (improvement ) is necessary because you have to add the said value from the zonal value of the land in order to get the taxable base. the combined value (zonal value -land plus market value of improvement ) will be compared among the selling price of the property and the fair market value for the land and building as determined by the assessor. the highest value among the three values shall be the taxable base upon which the capital gains and dst shall be based.

the same value of the improvement shall also be necessary in the computation of the transfer taxes.

as for the registration with the ROD, only the selling price is necessary.

David

Dear Jay,

I would be grateful if you can help me out with some information of taxes imposed by Philippine Government for my income outside Philippines.

The income I refer to is the income of Professional Fees that I had done as in part time basis. What will be the percentage?

Thank you

Jay

Hi, Mr. Jay C.

I just want to ask a question about a transfer of real property in consideration of shares of stocks of a new corporation.
the properties are located in different parts of the metro and some outside of manila. but company is located in Paranaque city. where do we base the fair market value and the computation of the tax. I know this kind of transaction is exempt from capital gains tax, what else? is it subject to Documentary stamp tax? transfer tax? or any other taxes im not aware of? like City tax, BIR or SEC.

Hello First time buyer, this has become the trend for some banks where the transferring of the title is passed on to the buyer. This responsibility can either be with the seller or the buyer but in this case the bank has made it a prerequisite for the sale, which is okay as long as the buyer agrees. I can see that if you ask them why they are passing this on to the seller, they say that it is one reason why the property is low priced, etc. This is not written in stone so I believe you can negotiate this with them, unless they have made this into their policy.

Your discussion today is very interesting. It so happened that I am working as consultant of local government on local taxation. Maybe I can provide more information later when I am not too busy.

But a quick explanation regarding Caloocan’s 82.5% of 1% tax rate. Transfer is a provincial or city imposition (with the exception of a municipality in Metro Manila). They are allowed to increase by not more than 10% once in every 5 years. So, 10% of 75% is 7.5% which if you add the 75% will become 82.5%. Incidentally, I was consultant of the City of Caloocan when the city revised its city revenue code but it still the city officials that decided on the increase.

Thanks and I really hope to be able to contribute to the discussion later.

Hi Tony, thank you very much for the valuable information. Now I get it, thanks for taking time to explain why Caloocan had those figures and if I have more questions, now I know who to contact. You are actually making a big contribution right now and I really appreciate it and I’m sure the same goes for a lot of readers as well. Thanks!

Hi Aileen, first of all, thank you for being a frequent visitor, and you are most welcome, glad to be of service! As for Zonal values, just like what Tony said, you may find them at BIR’s website. Here is a shortcut to the exact page containing zonal values: http://www.bir.gov.ph/zonalvalues/zonalvalues.htm

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About

Hi, I'm Jay Castillo, a full time real estate investor, and internet marketing practitioner.I started this blog in 2008 to keep all listings of foreclosed properties and lessons learned about real estate investing in the Philippines in one place.I am not a "guru", I only share what I have learned based on my own experience... Read more